World Cup Fever

As the sun sets on another FIFA World Cup, we analyse the economic benefits – both hard and soft – the global tournament can bring.

While the pain of “what-if” lingers for the England team, most us are looking back at an enjoyable tournament where the sun shone and a young, diverse group of players captured the imagination of the general public in a way not seen for a long time.

Whilst some of this success could be attributed to (temporarily) grounded English expectations during the build-up to the tournament, the growing “feel-good” factor brought by progress can help bring significant economic benefits too.

Consumer and business confidence is an important driver of a national economy. It is a key OECD data point (a “leading indicator”). The slowdown to the economy, which the Office of National Statistics attributed to Beast-from-the-East in February, lead to a significant downward adjustment to UK GDP in the first quarter of 2018. Whilst there are wider forces at play – including a potential headwind from Brexit uncertainty – this was seen as a reason for the postponement of expected interest rate rises earlier this year which frustrated embattled savers.

With all focus now on a potential August rate rise, the effect of emboldened UK consumer confidence, driven by positives like the heatwave, the World Cup and the Royal Wedding is significant.

Indeed, Mark Carney and Andy Haldane have acknowledged in interviews the “unadultered boost” of a World Cup win and the “feel-good-factor” for consumers. The Centre for Retail Research (CRR) predicted a £1.33bn boost to the UK economy just from qualifying for the World Cup and predicted that figure could have risen to £2.72bn if England had made the final (if only).

There have been increased summer sales in the obvious items such as food, drink (a lot of which seemed to be thrown in the air when England scored), widescreen TV’s, replica kits, waistcoats (thanks to Gareth Southgate) and even last minute, bucket-list flights to Moscow. Furthermore, research from Lloyds Bank has shown this feel-good factor can linger. Their research, which looked back over the competition since 1990 suggests countries that have enjoyed a successful World Cup campaign see consumer spending grow by an average of 4.5% among semi-finalists for a year after the tournament. That’s around 1.2% more than the average rise in spending the year before the competition. The largest boost came after USA 1994 when consumer spending grew by 10.7% in the year after the final, having grown by 8.6% in the year before.

As a counter, there have been doubts raised over the global sustainability of this boost. In Argentina, where visiting a World Cup is viewed as a near-religious experience, BBVA Banco Frances were offering pre-tournament 7-year loans at a 50% interest rate to help fund trips to Russia. The loans were for 1,000,000 Argentinian Pesos (about £28,000) payable in 84 instalments. That means, should Argentina qualify for Qatar 2022 (with or without Messi) borrowers will still be paying off their loan on this tournament, which proved to be disappointing for Argentina. According to reports, 8,500 of these loans were taken out (which in fairness should also be seen in the context of Argentina’s current volatile economic environment).

For the hosts Russia, who surpassed their own expectations on the pitch, the off-pitch benefits are exaggerated according to a report by the ratings agency Moodys. They see very limited economic impact at the national level given the limited duration of the World Cup and the very large size of the Russia’s economy, with only short-term benefits to their tourism sector.

FIFA – football’s global administrator – are always the winner at the World Cup. Despite their recent governance scandal which saw the end of Sepp Blatter’s reign and several major sponsors drop out, FIFA is still expected to generate US$6.1 billion revenue from the 2018 World Cup, 10% more than forecast, according to The New York Times. When the 2026 World Cup is jointly held in Mexico, Canada and the USA the organisers claim FIFA could make a $8 billion profit.

On top of the feel-good factor boosting those countries in the final knockout stages, there is a healthy prize fund on offer from FIFA. The total prize fund for the 2018 FIFA World Cup is $400 million. From England’s point of view, 4th place sees them receive a $24,000,000 prize. Given England’s positive emphasis on youth at this World Cup and tremendous recent progress of the Lionesses (Women’s Team), it would be great to see this dividend reinvested into the grass roots of the game.

Finally, whilst their research was admittedly light-hearted in tone, global investment bank UBS’ investment strategy team conducted 10,000 virtual tournament simulations and predicted Germany would win the 2018 World Cup. Goldman Sachs’ quantitative model conducted 1,000,000 simulations and predicted Brazil would win.